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Navigating Market Volatility

How To Manage Your Investments Through Market Uncertainty

Even if you’re investing for the long term, short-term market volatility can be difficult to stomach. Whether you have a 457, 401(k), 403(b), or an IRA, it’s important to keep your emotions in check during market volatility. Selling out of the market when it drops could mean missing out on an opportunity for growth when the market rebounds.

Volatility is likely to lessen when viewed over long time periods.

Managing Your Investments Through Market Uncertainty

It doesn’t hurt to use a market downturn as an opportunity to re-evaluate your financial goals, strategies, and allocations, and also rethink short-term plans. For example, if you’re approaching or already in retirement, it may make sense for you to pull back on unnecessary expenses or hold off on that big trip you were planning to take. If you work for an employer who offers matching 401(k), be sure to maximize your contribution, if it works for your budget. (It is free money, after all.)

Here are some other considerations for managing your retirement accounts during an uncertain market:

Be Patient

Market swings are normal and expected, so don’t panic when they happen. Historically, stocks overall have outperformed other major asset classes over the long term, and the impact of pulling out of the market could be worse than riding out short-term fluctuations. Results show missing just a few days over nearly three decades can result in a huge reduction in performance.1 It’s the time you’ve invested in the market – not timing the market – that matters.

Diversify Your Portfolio

It’s difficult to predict which investments will do well next. Instead, spread your money over different types of investments to mitigate some of the risk:

  • You can invest long-term savings in stock funds, while maintaining some short-term savings in cash and bond funds.
  • You can also invest in stocks and bonds focused on different types of businesses, like large companies, small companies, and international firms.
  • You can further diversify your portfolio by choosing some funds focused on fast-growing companies and others for companies that seem undervalued and ready for a rebound.

Low-cost index funds or mutual funds, like the S&P 500 or target-date funds, include different investment types, making it simple for investors to maintain a diverse portfolio.2 Keep in mind: While diversification does not prevent losses, it can help lessen investment risk.

 

“It’s the time you’ve invested in the market — not timing the market — that matters.”

Karen Chong-Wulff, Acting Chief Investment Officer

Match Your Investments to Your Time Horizon

If you’re years away from retirement, you may be able to weather more market volatility in return for the potential for larger, long-term returns. You can generally invest more of your money in riskier stock funds when you’re younger and gradually shift more money to bond funds and cash as you move closer to retirement.

Target-date funds are an easy way to ensure you’re investing based on your intended retirement age. These types of investments comprise mutual funds based on different time horizons, with more money in stock funds and less in bond funds when you’re young, and gradually shifting to more conservative investments as you get closer to retirement.

Rebalance Regularly

When one type of investment performs better than others, your overall portfolio balance can become riskier than you planned. Review your portfolio regularly and rebalance every year or so, such as the beginning of the year or on your birthday, or whenever your overall stock and bond investments stray more than a predetermined amount from your target mix.

You can rebalance by selling some of the investments that have increased in value and buying more that haven’t performed as well. Or, if you add money to your account with each paycheck, as with a 457, 401(k), or 403(b) plan (or IRA), you can direct more of your new contributions to the asset classes that haven’t performed as well to get your investments back in line with your original allocation over time. Target-date funds also automatically rebalance on a set schedule.

Use Dollar-Cost Averaging

Dollar-cost averaging, or investing a fixed amount of money on a regular basis such as biweekly contributions to your 457, 401(k), or 403(b) plan, takes away the temptation to try to time the market.3 It also means buying more shares when prices are low, and fewer when prices are up, resulting in an overall cost that is lower than if you bought the same number of shares at set intervals.

To make dollar-cost averaging simple, automate your savings as much as possible by enrolling in your employer-sponsored retirement plan and making regular payroll contributions. You can also sign up for auto-escalation, so your contributions increase by a specified percentage or dollar amount annually.

Adjust Your Strategy as You Near Retirement

As you approach your retirement, consider shifting some of your money to more conservative investments that are less subject to market volatility. Some retirees keep at least three to four years' worth of expenses in a stable value fund, which can help mitigate the impact of market volatility on your savings. Still, since you may live for 20 or 30 years in retirement, you'll want to keep a portion of your savings invested more aggressively for the long term.


Contact Us

Schedule a meeting with your MissionSquare Retirement representative to discuss the investment options available to you. For additional resources, check out the Retirement Education Center.